The Great Wealth Transfer Has Started. Here’s What You Need to Know.

February 8, 2018

Contributed by Jennifer Chin

The largest transfer of wealth ever recorded is happening right now, and you may not have even realized it.

Over the next 30 years, over 30 trillion dollars in assets are going to be passed from baby boomer parents and grandparents to their millennial heirs. This will shift the balance of the economy squarely into the hands of the younger generation—who have distinctly different spending habits and interests.

The effects of this shift in wealth will echo throughout every aspect of our economy. The truth is that nobody knows exactly how much things will change, but we’ve put together some thoughts on what to expect.

Why now?

All of this is happening now because the oldest members of the Baby Boom Generation turned 70.5 years old in 2017.

That may seem random and insignificant, but it’s not. U.S. tax laws require anyone 70.5 or older to begin making annual withdrawals from their tax-sheltered retirement accounts (and pay taxes on those withdrawals). To economists, that marks the unofficial start of “The Great Wealth Transfer.”

Why does it matter?

This is a big deal for a two main reasons. First, it’s simply a matter of scale—no previous generation has ever seen a transfer of wealth this size. According to the AARP, 80% of America’s wealth is currently held by people over the age of 50. That’s a huge portion of the economy, and it will shift the balance of buying power on to a whole new generation as it’s passed down to millennials.

That leads to the second reason the Great Wealth Transfer matters—millennials’ spending habits have made a lot of industries start worrying that they’re about to become obsolete.

Take housing, for example. Millennials are less likely to own a home than members of Generation X, and yet they’re currently the main source of new mortgages. So will the new influx of wealth encourage more young people to purchase homes? Or will we see home ownership rates continue to decline?

Millennials are also less likely than previous generations to rely on credit cards. Will the wealth transfer change that? Or are we moving towards a future where consumers are more debt-averse than ever before?

As millennials become the primary wealth holders in the economy, it will reshape the financial landscape for the foreseeable future.

How do you prepare?

What you do to prep for the Great Wealth Transfer depends on what side of the equation you find yourself on. Every individual’s situation is unique, but there are some universal starting points you can use to start your preparations.

Preparing to inherit

If you’re part of the younger generation, you need to be ready to handle your piece of the Great Wealth Transfer when it arrives. First and foremost, this means you need to have your own finances in order, so you’re ready to manage any new money that comes your way.

Fortunately, there are a lot of things you can do to help with that. Start by scheduling some time to talk with an expert and come up with a long-term financial plan. A big part of your plans will probably involve paying down your student loans. Steadily rising tuition costs have left this generation with a staggering amount of student loan debt. Coming up with a solid strategy for paying off your student loans—with or without the help of inherited wealth—should be a cornerstone of your plan.

You’ll probably also want to plan investments and prepare for your own retirement—something your generation is already known for. After speaking with your advisor, find some apps to help you stick to your plan—like YNAB for budgeting, Acorns for investing, and Mint for keeping a clear picture of your finances.

Preparing to pass it on

If you’re on the other side of the Great Wealth Transfer, make sure you have a plan in place to pass on your wealth. Plan time with a tax professional to understand what effect taxes will play on your transfer of wealth, particularly with the recent changes to the estate tax.

Again, we recommend meeting with a financial advisor to come up with a plan that fits your specific needs. Every situation is unique, but the goal is always the same—to live out your life in comfort and happiness.

Making your business ready

If you’re a business owner, start taking steps now to future-proof your company. Look at trends in millennial spending, as a start. They’re spending less overall than previous generations, which means you’re going to have to work harder to earn their business. (Unless your work involves trendy restaurants or new technology, in which case you’re probably in good shape.)

If your current customers are mostly ages 50 and up, and they just seem to keep getting older, you’re going to need to think through some things. Maybe it’s time to start making plans for your own retirement, or maybe it’s time to pivot your business to attract a younger audience.

If that’s the case, remember, this wealth transfer isn’t happening overnight! We’re still in the early stages of the transition, which puts you in the perfect place to take advantage of it. Be adaptable, and find ways to connect with the new generation taking the reins of the economy.

Conclusion

The Great Wealth Transfer is already underway, and there’s no changing that. But no matter what side of the equation you’re on, there are steps you can take to protect your financial future.

It all comes down to recognizing the change taking place, and making a plan to prepare for it. You know the change is happening, so what are you going to do about it?

Start making your financial plans now—it’s far too easy to let them slide, and the longer you wait the more opportunities you’ll miss. Find a financial planner you can trust, and set up a time to talk.

After all, there’s no better time than the present to plan for the future.

Jennifer Chin is a Community Manager at SL Tax Centers in New York City. She’s managed social media and marketing efforts for top companies in a number of industries, and has extensive experience in finance. Find out more about SL Tax and how you can plan for your financial future here: http://www.sltaxcenters.com/

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While I do strive to only write accurate information and dispense valuable advice, I am not a licensed financial adviser. All information is based solely on my personal experience and personal research and should be treated as such. Find out more.

Comments

Interesting take. From what I’ve been reading, many Baby Boomers don’t have the wealth to pass on (up to 50% of them have less than $100k) and many others plan to spend it before they go rather than leave an inheritance, especially now that we’re living longer lives. That being said, it’s always a good idea to get your financial house in order and it’s better to receive an inheritance you didn’t expect than to lose out on one you counted on.

Thanks for you input Gary! It definitely seems that the older generations are split wealth-wise, with some doing very well, and others barely scraping by. Perhaps this demonstrates the power of compound interest? ie, those who set aside money and let it grow now have more than enough thanks to the multiplying effects of compound interest. Those who didn’t on the other hand…

Thanks for the feedback! While it’s true that many individual members of the Baby Boomer generation aren’t planning to pass on great sums of wealth (or much of anything at all), there are still trillions of dollars under the possession of that generation. So even if they’re spending it all before they go, that money is still going to pass to the younger generation as they take over the lead role in the economy. I think the thing that has financial analysts and business owners taking note of the transfer is that, in general, the economy is going to belong to a new generation—one who does things decidedly differently than those in the past!

At any rate, it’s an interesting topic for discussion! Maybe we could work on a post for your blog where we delve deeper into it?

This is some fascinating stuff. Lots to think about as the years tick by. I agree with both you and Gary — there is a strong disparity. Two extremes of the Baby boomers’ financial situations. Something, too, for each of us to think about in light of our long-term futures. Will we be those who have invested/planned well early or are we living for the present with no thought to the consequences of our financial actions. Thanks for the post.